Trim the Fat: 3 Overbought Stocks Poised for a Pullback
Recently, I watched portions of a YouTube video that tangentially but importantly related to overbought stocks to sell. An options trader boasted about an 80% success rate with his system, which sounded like nonsense. Come on, an 80% success rate?
However, the trader revealed that he engages market opportunities with a short-term time horizon. Basically, when he gets his profits, he pulls out of the trade and moves onto the next opportunity. In some cases, he looks at the engaging the same idea but from the bearish angle.
It brought home an important lesson that we can all appreciate, whether as traders or investors. When it’s time to sell, it’s time to sell.
This framework doesn’t always mean that you have lost faith in the underlying narrative. However, the market ebbs and flows. There’s no need to be caught in a downdraft if it’s not necessary. On that note, below are ideas to consider for overbought stocks to sell.
Elevation Oncology (ELEV)
On paper, there’s a lot to like about Elevation Oncology (NASDAQ:ELEV). As a cancer treatment specialist, the company is involved in addressing a much-feared and pernicious disease. Further, the company’s website notes that it’s focused on the discovery and development of selective cancer therapies that can be matched to a patient’s unique tumor characteristics.
As Investing.com pointed out on Friday, ELEV stock enjoyed a significant rally, seeing its market value rise nearly 14%. The catalyst? The company received a fresh “market outperform” rating from JMP Securities. As well, the experts assigned an optimistic price target of $7. Against Friday’s close, the figure represents a nearly 40% lift.
Here’s the thing: up to that day, ELEV stock had already gained more than 695% in equity value on a year-to-date basis. At that point, the security’s relative strength indicator (RSI) popped up to 82.15 points. In my opinion, that makes it one of the overbought stocks to sell.
Keep in mind that Elevation is a pre-revenue company. Further, its loss per share may expand in the current year. Therefore, a cautious approach seems prudent.
Super Micro Computer (SMCI)
An information technology (IT) firm, Super Micro Computer (NASDAQ:SMCI) represents one of the largest producers of high-performance, high-efficiency servers. It also provides server management software and storage systems for various markets, such as data centers. Naturally, the remarkable boon in artificial intelligence has skyrocketed Super Micro’s relevance. Nevertheless, SMCI may be a candidate for overbought stocks to sell.
To be fair, Super Micro’s chart – which shows an RSI of a bit under 70 points – isn’t extremely overbought. However, we’ve already seen some wild choppiness in the security’s price action recently. With so much sentiment baked into the AI ecosystem, it may be a matter of time before a major player produces disappointing financial results.
If (or when) that happens, SMCI stock could be due for a severe pullback.
Granted, analysts are calling for revenue this year to hit $14.47 billion, which would represent a more than doubling of last year’s tally. Still, I’ve got to imagine that the market has already priced this forecast in. Further, the lackluster moderate buy consensus view among analysts caution is in order.
Digital World Acquisition (DWAC)
At first thought, the idea of Digital World Acquisition (NASDAQ:DWAC) appears enticing. Irrespective of your political views, one thing is for certain: former President Donald Trump is extremely popular among his base. Therefore, you’ve got to imagine that DWAC stock – the Trump-backed special purpose acquisition company – would command intense demand.
For sure, DWAC has been one of the revelations of the still-young 2024. When you print a performance in the charts that beats out some of the AI plays, you’re doing something right. However, recent developments might suggest that the former POTUS may have an Achilles’ heel. In particular, a recent Trump rally saw empty chairs being removed.
It reminds me of a campaign rally in Tulsa, Oklahoma – Trump Country basically – that conspicuously incurred empty seats. Of course, we all know what happened months afterward.
So, if you’ve managed to ink yourself a profit thanks to the stratospheric rise of DWAC stock, congratulations! However, the subsequent weak price action worries me. I think it’s one of the overbought stocks to sell – and probably right quick.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
